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Life Health > Life Insurance

Liddy: AIG Must Move Quickly To Keep Market Share

By Arthur D. Postal

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American International Group Inc. Chairman Edward Liddy said today the company is working to reorganize its core businesses into “clearly separate, independent” companies “worthy of investor confidence.”

He made his comments during a conference call following an announcement that AIG, New York, lost $100 billion in 2008.

Around the same time, the U.S. Treasury Department and the Federal Reserve Board issued a statement discussing their decision to put more funds into AIG and restructure their investment in the company to make it easier for AIG to survive.

Officials warned that more aid for AIG still might be needed.

During the earnings conference, Liddy acknowledged that making AIG a stable company and eliminating the need for government support will be difficult because of the size of the company and the poor economy. “The measure of the health of the investment-sensitive portion of our industry is down 52% year-to-date as of last Friday,” Liddy said. “That’s two months. And it is down over 70% since I became CEO of AIG in late September.”

AIG is aware that, despite the challenges, it must move quickly if it wants to prevent further erosion in the company’s market share, Liddy said.

“The marketplace is a pretty crummy place to be right now,” Liddy said.

Liddy also talked about giving the government a stake in American Life Insurance Company and American International Assurance Company in an effort to pay off much of the $38 billion it owes the Federal Reserve Bank of New York under a credit facility.

“This will allow AIG to tap the intrinsic value of its insurance companies, to repay a portion of government credit facility,” Libby said. “It will accelerate AIG’s restructuring plant and position these businesses as independent companies.”

AIG Chief Financial Officer David Herzog said during the conference call that most of the funds AIG has received from the Treasury and the Federal Reserve Board since the government took 79.9% of the company in exchange for $85 billion in cash Sept. 16 have gone to other companies.

“Most of the funds coming into AIG were turned over to other institutions, which benefited the entire financial sector,” Herzog said.

Earlier, Liddy discussed the scope of AIG’s connections with the world financial system.

“We operate in more than 130 countries in jurisdictions and have approximately 74 million customers and policy holders,” he said. “We’re one of the largest life insurance providers in the U.S. and in Asia. We’re the world’s largest property-casualty insurer, [and] we are the largest provider of retirement savings to primary and secondary school teachers and health care workers.”

AIG also has a $2 trillion financial products businesses, with more than $1 trillion of that amount concentrated with 12 major global financial institutions, Liddy said.

“If AIG would have failed, the impact on our customers and counterparties would have undermined an already unsettled global financial system,” Liddy said.

While Liddy and other AIG executives spoke, the Treasury and Fed announced that, in connection with the restructured AIG deal with the government, the Treasury will get a 77.9% stake in AIG as of Tuesday.

Because AIG poses a “systemic risk” to the world financial system, “restructuring will take time and possibly further government support, if markets do not stabilize and improve,” officials warn in a joint Treasury-Fed statement. “Given the systemic risk AIG continues to pose and the fragility of markets today, the potential cost to the economy and the taxpayer of government inaction would be extremely high.”

The revised term sheet calls for the New York Fed to take up to a $26 billion preferred interest in two AIG life insurance subsidiaries, and to make $8.5 billion in new loans to benefit the domestic life insurance subsidiaries of AIG, officials say.

In addition, the interest rate on the existing credit facility will be modified to reduce the existing floor, officials say.

Eliminating the floor will save AIG an estimated $1 billion in interest annually over the cost of the original Sept. 16 agreement, officials estimate.

The agreement now has been revised three times.

A replay of the conference call Webcast will be available here until March 20.

Links to the AIG releases about its earnings and the financing restructuring are available here.

The AIG Form 10-K is available here.

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